[Weekly Market Outlook] Market Reflects Policy Effects, Economic Uncertainty Highlights... 'Pause' Expected

New York Stock Market Drops Over 2% Again
Increased Likelihood of Sell-Off
"Time to Raise Interest in Large Growth Stocks"

[Asia Economy Reporter Oh Ju-yeon] Since the outbreak of the novel coronavirus infection (COVID-19), the stock market's rise has accelerated faster than improvements in real economic indicators, leading to a growing consensus about the possibility of a market peak becoming a reality. The securities industry expects a consolidation phase to continue for the time being. In particular, after the domestic stock market closed, the U.S. stock market plunged more than 2%, further increasing the likelihood of selling pressure.

According to NH Investment & Securities on the 28th, the KOSPI is expected to move within the range of 2030 to 2130 this week (June 29 to July 3). While the Federal Reserve's (Fed) commitment to accommodative monetary policy and additional U.S. fiscal measures could be positive factors, the resurgence of COVID-19 and the resulting uncertainty over the global economic growth recovery suggest the market may enter a consolidation phase.

On the 26th (local time), major New York indices fell sharply due to news of strengthened lockdown measures amid the resurgence of COVID-19. The Dow Jones Industrial Average dropped 2.84% compared to the previous trading day, the S&P 500 fell 2.42%, and the Nasdaq declined 2.59%. This is expected to have a negative impact on the domestic stock market as well.

Seosangyoung, a researcher at Kiwoom Securities, explained, "The domestic stock market is likely to see selling pressure as uncertainty rises due to the resurgence of COVID-19 in the U.S. Particularly, the announcement by some state governments to strengthen economic shutdowns has increased concerns, and factors such as the U.S.-China trade dispute and other economic uncertainties could stimulate volatility."

Researcher Seo added, "There are many important issues such as Korea's export and import data, manufacturing indices in the U.S. and China, U.S. employment figures, Micron's earnings announcement, and Fed Chair Powell's speech, so this increased volatility is expected to continue daily."

He also noted that major economic indicators are expected to fall short of forecasts based on recently released data, which adds to the burden.

Researcher Seo analyzed, "If the indicators exceed expectations, despite the spread of COVID-19, a rebound buying trend could emerge, and the results of these indicators will ultimately drive index changes this week."

However, the prevailing opinion remains that the possibility of a sharp decline is limited.

Labor Gil, a researcher at NH Investment & Securities, said, "Concerns about a second wave of COVID-19 are a factor to be cautious about, but the perception that conditions differ from those in February and March limits the possibility of a sharp drop. In the U.S., as economic activities gradually resume, recovery speeds vary by state. The western region, where IT companies are developed, is recovering quickly, while the eastern region, including Boston with its healthcare industry, is also showing recovery."

He added, "Concerns about a second wave of COVID-19 negatively affect risk asset sentiment, but it is expected that the previous adjustment pace will not be repeated. The slowdown in stock price recovery due to COVID-19 concerns is expected to lead to differentiated sectoral returns."

He emphasized that future growth stocks such as software, healthcare, and secondary batteries are valid buying opportunities during corrections.

Researcher Roh said, "It is necessary to recall that future growth stocks showed relatively strong returns during the previous adjustment phase caused by the COVID-19 outbreak. When index volatility increases, an investment strategy focused on large-cap stocks can be a relatively stable alternative, so attention to large-cap growth stocks is needed."

Moon Nam-jung, a researcher at Daishin Securities, stated, "The consensus on the possibility of a market peak has become a reality since late June. It is now a time when strategies to minimize volatility during the consolidation phase are important."

Researcher Moon forecasted, "Currently, the situation could significantly increase concerns about a COVID-19 resurgence, likely leading to the suspension of economic activities and lockdown measures. The stock market is expected to remain under price adjustment pressure until the Trump administration unveils its fifth economic stimulus package."

This content was produced with the assistance of AI translation services.